loan default meaning

A default occurs when a borrower stops making

required payments on a debt. Defaults can
occur on secured debt, such as a mortgage loan
secured by a house, or on unsecured debt, such
as credit cards or a student loan. Defaults
expose borrowers to legal claims and may limit
their future access to credit opportunities.
• What Is an Example of a Default?
• A default is a missed payment or multiple
missed payments on money that you've
borrowed. An example of a default would be
not paying your credit card bill or your
monthly mortgage payment.
What are the internal causes of loan default?

researchers proved that internal factors are

• high interest rate
• inadequate loan sizes
• poor appraisal
• lack of monitoring
• improper client selection
Explain external causes for loan default

Other causes of loan delinquency established by

the study include
• poor economic conditions,
• salary delays
• limited borrowers' sensitization,
• limited credit education among the borrowers
• character of the employers.
What Happens When You Default on a Loan?

When a borrower defaults on a loan, the consequences can

include:
• Negative remarks on a borrower's credit report and a
reduced credit score, which is a numerical measure of a
borrower's creditworthiness
• Reduced likelihood of obtaining credit in the future
• Higher interest rates on any new debt
• Garnishment of wages, a legal process that instructs a
third party to deduct payments directly from a borrower’s
wages or bank account, as well as other penalties
What methods are used by lenders to control loan defaulting?

These include
• pledging of collateral
• third-party credit guarantee
• use of credit rating /history of borrowing
• collection agencies